New Labour Code Compliance Checklist India 2026: Complete Guide for Employers and HR

Last verified: March 2026

If your company has not restructured salary slips since November 2025, you are already non-compliant with India’s new labour codes. The four codes — the Code on Wages 2019, Industrial Relations Code 2020, Code on Social Security 2020, and Occupational Safety, Health and Working Conditions Code 2020 — replaced 29 existing labour laws when they came into force on 21 November 2025. The 50% basic pay rule alone changes PF, ESI, and gratuity calculations for every employee on your payroll, and the penalties for getting it wrong range from Rs 50,000 to Rs 10 lakh depending on the offence, the applicable code, and whether it is a first or repeat violation.

India’s four new labour codes — the Code on Wages, Industrial Relations Code, Social Security Code, and OSH Code — replaced 29 existing labour laws effective 21 November 2025. Employers must restructure salaries so basic pay is at least 50% of total remuneration, register for digital compliance, and extend social security to gig and platform workers. This compliance checklist covers every obligation under the four codes, using the official Ministry of Labour and Employment FAQs issued in March 2026, so that HR managers, compliance officers, and business owners can audit their own compliance position in one sitting.

Table of Contents

• What Changed — The Four Labour Codes That Replace 29 Laws
  • Code on Wages, 2019 — Scope and Coverage
  • Industrial Relations Code, 2020 — Key Provisions
  • Code on Social Security, 2020 — What It Covers
  • OSH Code, 2020 — Workplace Safety and Conditions
• The 50% Wage Rule — How Salary Restructuring Works
  • What Counts as Total Remuneration for the 50% Calculation
  • Before and After — A Worked Salary Restructuring Example
  • How the New Wage Definition Affects PF, ESI, and Gratuity
• Complete Compliance Checklist — Code by Code
  • Wage and Salary Compliance Requirements
  • Social Security and Benefits Compliance
  • Working Hours, Leave, and Overtime Compliance
  • Digital Record-Keeping and Registration Requirements
• Fixed-Term Employees and Gratuity — The Rules That Catch Employers Off Guard
  • The 11-Month Contract Question — MoLE’s Official Position
  • Full-and-Final Settlement Within 48 Hours
• Gig Workers and Platform Workers — The Social Security Gap
  • What the Social Security Code Requires from Aggregators
  • The Multi-Platform Worker Problem Nobody Has Solved
• Penalties for Non-Compliance — What You Risk
  • First Offence vs Repeat Offence — The Escalation Structure
  • The Cure Period and Compounding Options
• Compliance for Small Businesses, Startups, and MSMEs
  • Threshold Exemptions — Who Gets Partial Relief
  • Minimum Viable Compliance for a 10-50 Employee Company
• State-Wise Implementation — Where Things Stand in March 2026
  • States That Have Notified Rules and Key Variations
  • What Happens When State and Central Rules Conflict
• How to Prepare — An Action Plan for HR Teams
  • The 30-60-90 Day Compliance Roadmap
• Disclaimer
• Frequently Asked Questions
• Conclusion

What Changed — The Four Labour Codes That Replace 29 Laws

The Indian Parliament passed four labour codes between 2019 and 2020 to consolidate and simplify 29 separate labour laws that had governed employment in India for decades. The gazette notification bringing them into force was published on 21 November 2025, the date the codes became effective. The Central Government subsequently published draft Central Rules under the four codes on 30 December 2025 for public consultation. This means every employer in India — whether a listed corporation, a private limited company, a startup, or a sole proprietorship — is now legally required to comply with the new framework.

The consolidation matters because the old regime created overlapping and sometimes contradictory obligations across laws like the Factories Act 1948, the Payment of Wages Act 1936, the Industrial Disputes Act 1947, the Employees’ Provident Funds Act 1952, and the Employees’ State Insurance Act 1948, among others. A mid-size manufacturing company with 200 employees might have needed to track compliance across 15 different statutes. Under the new structure, those same obligations fall under four codes, each with a unified set of definitions, thresholds, and penalty structures.

The practical shift is significant. The definition of “wages” is now standardised across all four codes. The concept of “worker” has been expanded to include gig and platform workers. Digital record-keeping has replaced the old register-based system. And the enforcement model has shifted from routine inspections to risk-based, algorithm-driven audits conducted through the Shram Suvidha Portal.

Old Framework	New Code	Key Laws Replaced
Wage-related laws	Code on Wages, 2019	Payment of Wages Act 1936, Minimum Wages Act 1948, Payment of Bonus Act 1965, Equal Remuneration Act 1976
Industrial relations laws	Industrial Relations Code, 2020	Industrial Disputes Act 1947, Trade Unions Act 1926, Industrial Employment (Standing Orders) Act 1946
Social security laws	Code on Social Security, 2020	EPF Act 1952, ESI Act 1948, Payment of Gratuity Act 1972, Maternity Benefit Act 1961, and 5 others
Safety and working conditions	OSH Code, 2020	Factories Act 1948, Contract Labour Act 1970, Mines Act 1952, Building Workers Act 1996, and 9 others

Code on Wages, 2019 — Scope and Coverage

The Code on Wages applies universally — to every establishment and every employee, regardless of wage level or industry sector. It introduces a single definition of “wages” that excludes only specific components such as employer PF contributions, employer pension contributions, statutory bonus, and certain other retirement benefits. Everything else — basic pay, dearness allowance, retaining allowance, and any allowance that exceeds 50% of total remuneration — falls within the definition of wages. This uniform definition is the foundation on which PF, ESI, gratuity, and bonus calculations now rest.

Industrial Relations Code, 2020 — Key Provisions

The Industrial Relations Code governs trade unions, standing orders, and industrial disputes. It raises the threshold for government permission before retrenchment, closure, or layoff from establishments with 100 or more workers to those with 300 or more workers. It introduces a mandatory 14-day notice period before strikes and lockouts. It also establishes recognition criteria for trade unions and introduces the concept of a “negotiating union” for collective bargaining. Fixed-term employment is recognised formally, with FTE workers entitled to the same benefits as permanent workers on a pro-rata basis.

Code on Social Security, 2020 — What It Covers

The Social Security Code brings EPF, ESI, gratuity, maternity benefits, and employee compensation under a single legislative umbrella. It expands coverage to include gig workers and platform workers for the first time. Aggregators are required to contribute a percentage of their annual turnover (between 1% and 2%, to be notified by the Central Government) towards a Social Security Fund. The Code also changes gratuity eligibility for fixed-term employees — they become eligible after completing one year of continuous service, regardless of whether their contract is renewed. The ESI coverage threshold remains at Rs 21,000 per month until further state-level rules are finalised.

OSH Code, 2020 — Workplace Safety and Conditions

The Occupational Safety, Health and Working Conditions Code consolidates 13 laws covering factories, mines, docks, construction, plantations, and contract labour. It mandates free annual health check-ups for workers above the prescribed age (the draft Central Rules specify 45 years for factories and mines). It limits working hours to 8 hours per day and 48 hours per week, with overtime provisions applicable to all “workers” as defined under the Code. The definition of “worker” excludes persons employed in a managerial or administrative capacity and supervisory employees earning above Rs 18,000 per month. The definition of “factory” now covers establishments with 20 or more workers (with power) or 40 or more workers (without power), expanding coverage to many smaller manufacturing units.

The 50% Wage Rule — How Salary Restructuring Works

The single most disruptive change under the new labour codes is the requirement that basic wages plus dearness allowance must constitute at least 50% of an employee’s total remuneration. This is not a guideline or a recommendation — it is a statutory requirement under the Code on Wages, and failure to comply attracts penalties.

The confusion around this rule has been so widespread that the Ministry of Labour and Employment issued nine separate clarifications on the Code on Wages alone in its official FAQ documents dated December 2025 and March 2026. HR managers and payroll teams across India have been asking what exactly counts as “total remuneration,” whether overtime is included, whether gratuity shown as part of CTC falls within the calculation, and whether employer PF contributions are part of the denominator.

The answer, per the MoLE FAQ, is specific. Total remuneration for the purpose of the 50% calculation includes all components paid to the employee. Overtime payment forms part of total remuneration. However, employer PF contributions, employer pension contributions, and statutory bonus are excluded from the calculation. Gratuity, ESI employer contributions, and other retirement benefits are also excluded. Annual performance-based incentives do not form part of “wages” under the Code.

What Counts as Total Remuneration for the 50% Calculation

The definition has practical consequences that many employers have not fully worked through. If an employer structures CTC with basic pay at 25% and loads the remaining 75% into house rent allowance, special allowance, conveyance allowance, and other components, the allowance portion (75%) exceeds 50% of total remuneration. Under the new Code, the excess over 50% — in this case 25% — is automatically reclassified as “wages” for the purpose of PF, ESI, gratuity, and bonus calculations, regardless of what the salary slip calls it.

This means that companies which relied on a low-basic, high-allowance salary structure to minimise PF and ESI contributions must now restructure. The restructuring increases employer PF contributions (12% of a higher base), increases ESI contributions where applicable, increases gratuity liability, and correspondingly reduces the employee’s take-home pay even though CTC remains unchanged.

Before and After — A Worked Salary Restructuring Example

Consider an employee with an annual CTC of Rs 10,00,000. Under the old structure, many companies set basic pay at approximately 25% of CTC.

Component	Before (25% Basic)	After (50% Basic)
Basic Pay (annual)	Rs 2,50,000	Rs 5,00,000
HRA	Rs 1,25,000	Rs 2,00,000
Special Allowance	Rs 4,25,000	Rs 1,00,000
Employer PF (12% of Basic)	Rs 30,000	Rs 60,000
Employer ESI (3.25% if applicable)	Rs 8,125	Rs 16,250
Gratuity Provision (4.81% of Basic)	Rs 12,025	Rs 24,050
Take-Home (approx. monthly)	~Rs 63,500	~Rs 58,200

The CTC remains Rs 10,00,000 in both cases. But the employee’s monthly take-home drops by approximately Rs 5,300 because more money flows into PF and ESI. The employer’s statutory contribution costs also increase. This is not a pay cut — it is a shift towards higher retirement and social security savings — but employees experience it as a reduction in cash in hand, and HR teams must communicate this effectively.

How the New Wage Definition Affects PF, ESI, and Gratuity

The new wage definition has a cascading effect. PF contributions are calculated on “wages” as defined by the Code. Since the wage base increases when basic pay moves to 50%, employer PF contributions increase proportionally. The same applies to ESI employer contributions for employees earning below the Rs 21,000 monthly threshold. Gratuity liability also increases because gratuity is calculated as (last drawn wages x 15/26 x years of service), and “last drawn wages” now follows the Code’s definition. For employees who were already above the ESI ceiling, the PF and gratuity impact is the most significant financial change.

Complete Compliance Checklist — Code by Code

This checklist consolidates every major compliance requirement across the four labour codes into a single reference.

Compliance Area	Key Requirement	Applicable Code	Frequency	Penalty Range
Salary structure	Basic + DA >= 50% of total remuneration	Code on Wages	One-time restructuring + ongoing	Rs 50,000 first offence
Minimum wages	Pay at or above floor wage for all categories	Code on Wages	Ongoing	Rs 50,000 (first), Rs 1 lakh (repeat)
Overtime payment	Twice the normal wage rate for all workers	Code on Wages	Per occurrence	Rs 50,000 (first)
Equal remuneration	No gender-based wage discrimination	Code on Wages	Ongoing	Rs 50,000-Rs 1 lakh
PF contributions	12% of wages (as newly defined)	Social Security Code	Monthly (15th of each month)	Up to Rs 5 lakh
ESI contributions	Employer 3.25%, Employee 0.75% (if wages <= Rs 21,000/month)	Social Security Code	Monthly (15th)	Up to Rs 5 lakh
Gratuity provision	4.81% of wages; eligible after 5 years (or 1 year for FTE)	Social Security Code	Annual provision / on separation	Up to Rs 1 lakh
Maternity benefit	26 weeks paid leave; creche for 50+ employees	Social Security Code	Per occurrence	Up to Rs 1 lakh
Gig worker cess	1-2% of annual turnover (for aggregators)	Social Security Code	Annual (rates to be notified)	To be specified
Trade union recognition	Recognised union for 51%+ membership	Industrial Relations Code	On application	—
Standing orders	Mandatory for 300+ worker establishments	Industrial Relations Code	One-time + amendments	Rs 1 lakh
Retrenchment notice	90 days + govt permission for 300+ establishments	Industrial Relations Code	Per occurrence	Up to Rs 10 lakh
Working hours	Max 8 hours/day, 48 hours/week (with exceptions)	OSH Code	Ongoing	Rs 2 lakh (first), Rs 5 lakh (repeat)
Annual health check-up	Free for workers above prescribed age (45 in draft rules)	OSH Code	Annual	Rs 2 lakh
Digital records	Electronic registers replace physical registers	All Codes	Ongoing	Varies by code
Shram Suvidha registration	Single registration + digital compliance portal	All Codes	One-time + updates	—

Wage and Salary Compliance Requirements

Every employer must ensure that basic wages plus dearness allowance constitute at least 50% of total remuneration for every employee. Minimum wages must be paid at or above the floor wage set by the Central Government for the relevant category and region. Overtime must be paid at twice the normal wage rate for all “workers” as defined under the Code. The overtime provisions do not extend to persons employed in a managerial or administrative capacity, or to supervisory employees earning above Rs 18,000 per month, as these categories fall outside the statutory definition of “worker.” Wage payments must be made within the 7th of the following month for monthly-paid employees, and deductions must not exceed 50% of monthly wages except in cases specified by the Code.

Social Security and Benefits Compliance

Employers must register on the EPFO and ESIC portals and ensure contributions are deposited by the 15th of each month. The PF contribution rate is 12% of “wages” as defined under the Code — which now includes any allowance component exceeding 50% of total remuneration. ESI applies to establishments with 10 or more employees where individual employee wages do not exceed Rs 21,000 per month. Gratuity must be provisioned at 4.81% of wages and paid within 30 days of it becoming payable. Fixed-term employees are entitled to gratuity on a pro-rata basis after completing one year of continuous service, regardless of contract duration.

Working Hours, Leave, and Overtime Compliance

The OSH Code caps daily working hours at 8 hours and weekly hours at 48 hours, with provisions for spread-over not exceeding 12 hours in a day. Overtime is payable when daily work exceeds 8 hours or weekly work exceeds 48 hours — whichever threshold is breached first. Leave provisions under the OSH Code apply specifically to “workers” and to supervisory employees earning up to Rs 18,000 per month. The maximum leave carry-forward is 30 days, but leave that was applied for and refused by the employer can be carried forward without limit and may be encashed. There is no maximum cap on leave encashment amount for eligible workers.

Digital Record-Keeping and Registration Requirements

All employers must now maintain employment records, wage registers, attendance records, and inspection records in electronic format. Physical registers are no longer accepted. Registration must be completed through the Shram Suvidha Portal, which generates a single Labour Identification Number (LIN) for the establishment. Inspections are conducted on a risk-based, algorithm-driven model — the portal assigns inspections based on sector risk, compliance history, and worker complaints rather than routine visits.

Fixed-Term Employees and Gratuity — The Rules That Catch Employers Off Guard

The treatment of fixed-term employees under the new codes has generated more confusion than almost any other provision. Many employers in India use 11-month employment contracts specifically to avoid triggering gratuity obligations under the old Payment of Gratuity Act, which required five years of continuous service. The new codes change this calculation fundamentally.

Under the Social Security Code 2020, fixed-term employees become eligible for gratuity after completing one year of continuous service from the date the contract begins. This means an employee on a 13-month fixed-term contract is entitled to pro-rata gratuity. However, an employee on an 11-month contract is not — the MoLE FAQ Q19, issued as part of the Industrial Relations Code clarifications, specifically states that an 11-month FTE is not eligible for gratuity because they have not completed one year from the start of the contract.

The distinction between fixed-term employees and contract labour is equally important. MoLE FAQ Q10 clarifies that fixed-term employment under the Industrial Relations Code covers only employees engaged directly by the establishment — not workers supplied through a labour contractor. Contract labour remains governed by the contractor’s obligations, and gratuity liability for contract workers falls on the contractor, not on the principal employer.

The 11-Month Contract Question — MoLE’s Official Position

The 11-month contract has been the default employment structure for millions of Indian workers, from security guards to IT project staff. Under the new framework, this practice continues to avoid gratuity — but only barely. If an employer engages the same person on consecutive 11-month contracts with brief gaps between them, tribunals may treat the arrangement as continuous employment for the purpose of gratuity calculation. The MoLE FAQ does not address consecutive contracts directly, which means this remains an area of legal risk. For employers still using this structure, a review with a labour law specialist is advisable.

For employees who joined before 21 November 2025, the MoLE FAQ (Q17) clarifies that gratuity will be calculated based on the last drawn wages at the time of separation, using the new wage definition under the Social Security Code 2020. This means the restructured salary (with higher basic pay) will increase the gratuity payout for long-serving employees.

Full-and-Final Settlement Within 48 Hours

The Code on Wages requires employers to complete full-and-final settlement of all dues within two working days of an employee’s last working day. This includes unpaid wages, earned leave encashment, proportionate bonus, and any other amounts due. The 48-hour timeline is significantly tighter than the previous practice of settling dues within 30-45 days. Companies must build workflows and payroll system capabilities to calculate and process final settlements on short notice, particularly for terminations and resignations that take effect immediately.

Gig Workers and Platform Workers — The Social Security Gap

The Social Security Code 2020 includes gig workers and platform workers within the ambit of social security for the first time in Indian labour law history. Aggregators — defined as digital intermediaries that connect buyers and sellers of services — are required to contribute between 1% and 2% of their annual turnover towards a Social Security Fund. The Central Government is responsible for notifying the specific contribution rates, designing the fund structure, and determining what benefits gig workers will receive.

As of March 2026, the contribution rates have not been notified. The Social Security Fund exists in the legislation but has not been operationalised. This creates a structural gap where the law recognises gig workers as beneficiaries but the mechanism for delivering benefits remains incomplete.

What the Social Security Code Requires from Aggregators

Every aggregator operating in India must register with the Central Government and contribute the notified percentage of annual turnover to the Social Security Fund. The Fund is intended to provide life and disability cover, health and maternity benefits, and old age protection for gig and platform workers. Aggregators must also maintain electronic records of all gig workers engaged through their platform, including payment records, working hours, and engagement periods.

The Multi-Platform Worker Problem Nobody Has Solved

The most significant design challenge in the gig worker provisions is the treatment of multi-platform workers. A delivery driver who works for three different food delivery and logistics platforms simultaneously has no single employer. Each platform contributes a percentage of its own turnover — not a percentage of what it pays to that specific worker. There is no central registry that aggregates entitlements across platforms. There is no mechanism for a worker to claim consolidated benefits. Platforms have an incentive to encourage multi-apping because it reduces their per-worker contribution burden. Until the Central Government notifies contribution rates and creates a cross-platform aggregation system, gig worker social security remains a legislative promise rather than an operational reality.

Penalties for Non-Compliance — What You Risk

The penalty structure under the new labour codes follows an escalation model. First offences attract monetary fines. Repeat offences attract higher fines and, in some cases, imprisonment. The codes also introduce a compounding mechanism — certain offences can be settled by paying a compounding fee without prosecution, provided the employer corrects the violation within a specified period.

Offence Type	First Offence	Repeat Offence	Imprisonment
Non-payment of wages / underpayment	Fine up to Rs 50,000	Fine up to Rs 1,00,000	Up to 3 months (repeat)
Violation of working hours / overtime	Fine up to Rs 2,00,000	Fine up to Rs 5,00,000	Up to 6 months (repeat)
Non-compliance with safety standards	Fine up to Rs 2,00,000	Fine up to Rs 5,00,000	Up to 6 months (repeat)
Failure to register / maintain records	Fine up to Rs 50,000	Fine up to Rs 1,00,000	—
Obstructing inspector	Fine up to Rs 1,00,000	Fine up to Rs 2,00,000	Up to 6 months
Fatal safety violation (repeat)	—	Fine up to Rs 10,00,000	Up to 2 years

First Offence vs Repeat Offence — The Escalation Structure

The codes define a “repeat offence” as the same or similar violation committed within five years of a previous conviction. This means a company fined for wage underpayment in 2026 that commits the same violation again before 2031 faces significantly higher penalties — up to Rs 5,00,000 and imprisonment of up to six months for the responsible person under the OSH Code, and up to Rs 10,00,000 with imprisonment of up to two years where the repeat violation causes death or serious bodily injury. The “responsible person” includes every person who was in charge of and responsible to the company for the conduct of business at the time of the offence, as well as any director, manager, secretary, or other officer with whose consent or neglect the offence occurred — meaning personal criminal liability can extend beyond the company entity to individual officers responsible for compliance.

The Cure Period and Compounding Options

The new codes introduce a compliance opportunity — for certain offences, an Inspector-cum-Facilitator must first issue a notice directing the employer to rectify the violation within a specified period. Only if the employer fails to rectify within this period does prosecution begin. Additionally, compoundable offences can be settled by paying a compounding fee (typically 50% of the maximum fine) to the appropriate government authority. This cure-first approach is intended to encourage compliance rather than penalise employers who are making good-faith efforts to transition.

Compliance for Small Businesses, Startups, and MSMEs

The new labour codes do not exempt small businesses from compliance. However, certain thresholds provide partial relief. Establishments with fewer than 10 employees are not required to register under the ESI Act. Establishments with fewer than 20 employees are generally outside the scope of EPF (unless the Central Government notifies them). The standing orders requirement under the Industrial Relations Code applies only to establishments with 300 or more workers, reducing the documentation burden for smaller firms.

Despite these thresholds, every employer — regardless of size — must comply with the Code on Wages provisions, including the 50% wage rule, minimum wage payments, and overtime requirements. The OSH Code also applies to establishments with 10 or more workers for general safety provisions and 20 or more workers (with power) for factory-specific requirements.

Threshold Exemptions — Who Gets Partial Relief

Startups and MSMEs should audit their workforce size against three key thresholds. The 10-employee threshold triggers ESI registration. The 20-employee threshold triggers EPF registration. The 300-worker threshold triggers standing orders and retrenchment permission requirements. For companies hovering near these thresholds, workforce planning must account for the compliance cost of crossing them. A startup that grows from 9 to 11 employees takes on ESI registration and contribution obligations that add approximately 3.25% of the wage bill to employer costs.

Minimum Viable Compliance for a 10-50 Employee Company

A company with 10-50 employees must, at minimum, restructure all salary slips to meet the 50% wage rule, register on the Shram Suvidha Portal, register for ESI and EPF, deposit monthly PF and ESI contributions by the 15th, maintain digital employment and wage records, ensure overtime payments at twice the normal rate, and establish a POSH Internal Committee if the company has 10 or more employees. This represents the compliance floor. Companies in manufacturing, construction, or other high-risk sectors must also comply with the full safety and health provisions of the OSH Code.

State-Wise Implementation — Where Things Stand in March 2026

While the Central Government brought the four codes into force on 21 November 2025 and published draft Central Rules on 30 December 2025, individual states must notify their own rules under each code. This creates a patchwork implementation landscape where different states are at different stages of readiness. The central rules provide the default framework, but states can and do introduce variations — particularly on leave provisions, overtime limits, and factory thresholds.

The Ministry of Labour and Employment set April 2026 as the target for full operationalisation across all states. As of March 2026, several states have notified their rules under some or all of the four codes, while others are still in the draft consultation stage.

States That Have Notified Rules and Key Variations

States including Uttar Pradesh, Gujarat, Madhya Pradesh, Karnataka, Rajasthan, and Haryana were among the first to publish draft rules under the labour codes. Key variations include differences in leave carry-forward limits (the OSH Code sets 30 days at the central level, but some state rules allow different limits), differences in factory threshold definitions, and differences in overtime provisions for specific sectors. The health check-up requirement applies to workers above 45 years at the central level, but some states may set different age thresholds depending on their rules for hazardous industries.

What Happens When State and Central Rules Conflict

The MoLE FAQ (Q25) addresses this directly. When there is an inconsistency between the central code and a state rule, the central code prevails. However, when a state rule is more favourable to the worker than the central provision, the state rule prevails. For multi-state employers, this means compliance teams must track not just the four central codes but also the state-specific rules in every state where they have employees, and apply whichever provision is more beneficial to the worker on a case-by-case basis.

How to Prepare — An Action Plan for HR Teams

Compliance with the new labour codes is not a one-time exercise. It requires systematic changes to payroll systems, employment contracts, internal policies, and ongoing reporting. The following roadmap provides a structured approach for HR teams that are still in the process of transitioning.

The 30-60-90 Day Compliance Roadmap

In the first 30 days, the priority is salary restructuring and payroll system updates. Every employee’s CTC structure must be reviewed to ensure basic pay plus dearness allowance reaches at least 50% of total remuneration. Payroll software must be configured to calculate PF, ESI, and gratuity based on the new wage definition. Employment contracts for new hires must reflect the new salary structure.

In the next 30 days (days 31-60), the focus shifts to registration and digital compliance. The company must register on the Shram Suvidha Portal if not already registered. All employment records, wage registers, and attendance records must be migrated to electronic format. The Internal Committee under the POSH Act must be constituted or renewed. Fixed-term employment contracts must be reviewed and updated to reflect gratuity provisions.

In the final phase (days 61-90), the company should conduct an internal compliance audit covering all four codes. This audit should verify that PF and ESI contributions for the past months have been calculated on the correct wage base, that overtime has been paid at the correct rate, that digital records are complete, and that all state-specific requirements have been addressed. The audit findings should be documented and any gaps closed before the April 2026 full operationalisation deadline.

Disclaimer: This article is for informational and educational purposes only and does not constitute legal advice. Laws, rules, and procedures are subject to change. For advice specific to your situation, consult a qualified legal professional. Information is current as of March 2026.

Frequently Asked Questions

What are the four new labour codes in India and when did they come into effect?

The four codes are the Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020, and the Occupational Safety, Health and Working Conditions Code 2020. They were brought into force on 21 November 2025, with draft Central Rules published on 30 December 2025. Together, they replace 29 separate labour laws that previously governed wages, industrial relations, social security, and workplace safety in India.

Which 29 laws did the new labour codes replace?

The Code on Wages replaced four laws including the Payment of Wages Act 1936, Minimum Wages Act 1948, Payment of Bonus Act 1965, and Equal Remuneration Act 1976. The Industrial Relations Code replaced three laws including the Industrial Disputes Act 1947 and the Trade Unions Act 1926. The Social Security Code replaced nine laws including the EPF Act 1952, ESI Act 1948, and Payment of Gratuity Act 1972. The OSH Code replaced 13 laws including the Factories Act 1948 and Contract Labour Act 1970.

What is the difference between wages and minimum wages under the Code on Wages?

Wages, as defined in Section 2(y) of the Code on Wages, include basic pay, dearness allowance, retaining allowance, and any allowance component that exceeds 50% of total remuneration. Minimum wages are the floor rates fixed by the Central or State Government for different categories of workers and regions. An employer must pay at least the applicable minimum wage, but the “wages” definition determines the base for calculating PF, ESI, bonus, and gratuity.

How should employers restructure salaries to comply with the 50% wage rule?

Employers must ensure that basic pay plus dearness allowance equals at least 50% of the employee’s total remuneration (excluding employer PF contributions, statutory bonus, and employer ESI contributions). If the current basic is below 50%, the employer must increase basic pay and reduce allowance components proportionally, keeping CTC unchanged. PF, ESI, and gratuity must then be recalculated on the higher basic pay figure.

What records must employers maintain digitally under the new codes?

Employers must maintain electronic records of employee details, wage payments, attendance, overtime, leave, deductions, PF/ESI contributions, and inspection reports. Physical registers are no longer accepted. All records must be maintained through the Shram Suvidha Portal or compatible HRMS systems that generate compliant digital records.

How is gratuity calculated for fixed-term employees under the new codes?

Fixed-term employees are eligible for pro-rata gratuity after completing one year of continuous service from the date of their contract. The calculation uses the formula: (last drawn wages x 15/26 x years of service). “Last drawn wages” follows the new wage definition under the Social Security Code. An employee on an 11-month contract is not eligible, per MoLE FAQ Q19, because they have not completed one year.

What are the penalties for non-compliance with the new labour codes?

First offences attract fines ranging from Rs 50,000 to Rs 2,00,000 depending on the nature of the violation and the applicable code. Repeat offences within five years attract higher fines — up to Rs 5,00,000 under the OSH Code, with imprisonment of up to six months. Where a repeat violation causes death or serious injury, penalties can reach Rs 10,00,000 and two years imprisonment. The codes also allow compounding — settling certain first offences by paying 50% of the maximum fine and correcting the violation.

Does overtime apply to managerial and supervisory staff under the new codes?

The overtime provisions under the OSH Code apply to “workers” as defined in the Code. Persons employed in a managerial or administrative capacity, and supervisory employees earning above Rs 18,000 per month, are excluded from the definition of “worker” and are therefore not covered by the statutory overtime provisions. Overtime at twice the normal wage rate applies to all other employees when daily work exceeds 8 hours or weekly work exceeds 48 hours.

Does the 48-hour full-and-final settlement rule apply to all employees?

The Code on Wages requires that all dues — including unpaid wages, earned leave encashment, and proportionate bonus — must be settled within two working days of the employee’s last working day. This applies to all employees whose terms are governed by the Code on Wages, which is universal in scope.

Are gig workers and platform workers covered under the Social Security Code?

Yes, the Social Security Code 2020 includes gig workers and platform workers for the first time. Aggregators must contribute 1-2% of annual turnover to a Social Security Fund. However, as of March 2026, the contribution rates have not been officially notified, and the Fund has not been operationalised. Benefits are expected to include life cover, health benefits, and maternity benefits.

Do the new labour codes apply to startups and small businesses with under 10 employees?

The Code on Wages applies to all employers regardless of size. The 50% wage rule, minimum wage requirements, and overtime provisions apply even to a company with one employee. However, ESI registration is triggered at 10 employees, EPF registration at 20 employees, and standing orders under the Industrial Relations Code at 300 workers. Smaller firms have fewer social security registration obligations but must comply fully with wage and safety provisions.

How does leave encashment work under the OSH Code?

Leave encashment under the OSH Code applies specifically to “workers” and to supervisory employees earning up to Rs 18,000 per month. The maximum leave carry-forward is 30 days. However, if an employer refuses a worker’s leave application, that leave can be carried forward without limit and may be encashed. There is no statutory ceiling on the leave encashment amount for eligible workers.

What happens when state rules conflict with central labour code provisions?

Per MoLE FAQ Q25, when there is an inconsistency between the central code and a state rule, the central code prevails. But when a state rule provides a benefit that is more favourable to the worker than the central provision, the state rule takes precedence. Multi-state employers must track both central and state-specific rules and apply whichever is more beneficial to the worker on a case-by-case basis.

How are ESI and PF contributions calculated under the new wage definition?

PF contributions are calculated at 12% of “wages” as defined under the Code — which includes basic pay, dearness allowance, and any allowance exceeding 50% of total remuneration. ESI applies where employee wages do not exceed Rs 21,000 per month, with employer contributing 3.25% and employee contributing 0.75% of wages. Both calculations use the new broader wage definition, which increases the contribution base for most employers.

When will all states complete implementation of the labour code rules?

The Ministry of Labour and Employment has set April 2026 as the target for full operationalisation across all states. As of March 2026, several states including Uttar Pradesh, Gujarat, Karnataka, and Haryana have notified rules under some or all codes. Other states are in the draft consultation stage. Employers should monitor the Shram Suvidha Portal and state labour department websites for the latest notifications.

Conclusion

India’s four new labour codes represent the most significant overhaul of employment regulation in the country’s history. The compliance burden is real — salary restructuring, PF/ESI recalculations, digital record-keeping, fixed-term employee provisions, gig worker obligations, and state-wise rule tracking all require systematic attention. But the codes also simplify what was previously a maze of 29 overlapping laws into a more coherent framework. The cure period and compounding mechanisms show that the intent is compliance, not punishment. HR teams that invest in understanding the new framework now — rather than reacting to inspection notices later — will be far better positioned. For the most current information, check the official Ministry of Labour and Employment website at labour.gov.in.